Happening now, one of the FBI's most wanted fugitives, a notorious mobster, captured after 16 years on the run thanks in part to a very unusual tactic.

Also, letters found in Osama bin Laden's compound show the terror leader was increasingly worried he was losing a public relations war with the United States.

And a political odd couple team teaming up on a bill that would change everything about federal marijuana laws in the United States, but will it lead to legalization.

We want to welcome our viewers in the United States and around the world, breaking news, political headlines and Jeanne Moos all straight ahead.

I'm Wolf Blitzer. You are in THE SITUATION ROOM.

He was up there with no less than Osama bin Laden on the list of the FBI's 10 most wanted fugitives. The legendary Boston mobster James "Whitey" Bulger, he spent 16 years on the run, wanted for 19 counts of murder, along with racketeering, extortion and a host of other charges.

With the trail grown cold in recent years, the FBI tried a new tactic this week, focusing instead on finding Bulger's longtime girlfriend, Catherine Greig, hoping she would lead investigators to him. So, they ran this announcement on local TV station across the country.

(BEGIN VIDEO CLIP)

NARRATOR: Have you seen this woman? The FBI is offering $100,000 for tips leading to Catherine Greig's whereabouts. These photos were from the 1990s. Greig has had plastic surgeries. She is wanted for harboring James "Whitey" Bulger, a fugitive on the FBI's 10 most wanted list.

(END VIDEO CLIP)

BLITZER: The unusual tactic did work. Just days after that spot started airing, the FBI received a tip that led them to an apartment in Santa Monica, California, where Bulger and Greig were captured without incident.

(BEGIN VIDEO CLIP)

CARMEN ORTIZ, U.S. ATTORNEY: I do want to note, though, that through the doggedness of the FBI in finding Bulger that, despite numerous media campaigns throughout the years and a collaboration with "America's Most Wanted' and other efforts, and despite pursuing tips all over the world and leads all over the world to find Mr. Bulger, they never gave up.

And it was week's public service announcement seeking information as to Catherine Greig's whereabouts, hoping that it would lead to Bulger, paid off.

(END VIDEO CLIP)

BLITZER: All right, just within the past few moments, Bulger appeared in court in Los Angeles. Here is the booking photo, which we just received a short while ago, Greig and Bulger.

CNN's Kara Finnstrom is outside the courthouse in Los Angeles.

Update our viewers, Kara, on what's going on right now.

KARA FINNSTROM, CNN CORRESPONDENT: Well, today's court hearing lasted just about six or seven minutes. No cameras were allowed inside that courtroom.

A limited number of reporters and observers were, which is giving us a glimpse of what took place in there. Also, as you mentioned, that mug shot has been released of Bulger and of Greig, which gives us our first look at them since he went on the run 16 years ago.

Now, we are told that both of them denied having bail set. So no bail has been set for them. They say that they will be held without bail. They didn't want to challenge that. Also, no extradition hearing has been requested. We are being told that they will be sent back to Boston for trial as quickly as possible, possibly tonight.

Now, we are told they both walked in, in white coverings that appeared to be a jumpsuit and that Bulger is now bald, was also wearing glasses, was very polite in the courtroom and very orderly.

We also did get a comment that was passed along to us. The magistrate asked if he was aware of the two indictments that were given to him and handed down to him. We are told that he seemed jovial at that point and then he said: "I know them. I know them all. Thank you."

He was also described as clean-shaven. Again, that court proceeding now over, both of them now headed back apparently this evening to Boston, where a long court trial will begin.

And we can also tell you that, earlier today, what we were told by the FBI is that all of this was the result of his girlfriend being featured in a public service announcement, details about her that were very particular to her highlighted in this public service announcement. And someone came forward, a tipster, said they recognized her, and that led police to Bulger, who again had been on the run now for 16 years -- Wolf.

BLITZER: She is 81 and she is 60 years old. Did you say he is now clean-shaven? Because on that booking, that mug shot, it looks like he has got a beard there.

FINNSTROM: It did. Now, that's the description we were just handed down moments ago.

And, Wolf, I'll tell you, the information coming out fast and furious. I haven't been able to see that mug shot which is now on the air, but we were told that he appeared clean-shaven and polite. And perhaps that was more of a description of his overall attitude.

BLITZER: Kara Finnstrom on the scene for us, thank you.

Bulger is as legendary as he is notorious, especially in his hometown of Boston. In fact, he is said to be the inspiration for Jack Nicholson's role in the 2006 Martin Scorsese film "The Departed."

(BEGIN VIDEO CLIP, "THE DEPARTED")

JACK NICHOLSON, ACTOR: It makes me curious to see you in this neighborhood.

UNIDENTIFIED ACTOR: Explain.

NICHOLSON: And if I can slander my own environment, it makes me sad, this regression.

(END VIDEO CLIP)

BLITZER: CNN's Deborah Feyerick has more now on the reaction in Boston to Bulger's arrest.

Deb, what are people there saying?

DEBORAH FEYERICK, CNN CORRESPONDENT: Well, Wolf, Whitey Bulger has been this larger-than-life character. He controlled the streets of South Boston. And he was known both for his brutality, but also at times for his acts of kindness.

He is somebody who went away to prison when he was just 14 years old, later served time in federal prisons like Alcatraz. Perhaps that factored into to the reason he ran, rather than be capture -- Wolf.

(BEGIN VIDEOTAPE)

FEYERICK (voice-over): On the streets of South Boston in a largely Irish-American neighborhood, word of James Bulger, AKA Whitey Bulger's arrest, spread fast.

UNIDENTIFIED MALE: Basically, it's just weird how they caught him. I never thought they would catch him. FEYERICK: For more than two decades, Bulger ran the notorious Irish mob known as the Winter Hill Gang. He paid off police and politicians and disappeared Christmas 1994 after a tip from a corrupt FBI agent alerting him federal agents were closing in.

BOB STUTMAN, FORMER DEA AGENT: The state police knew the FBI was in his pocket.

FEYERICK: Bob Stutman was in Boston running the Drug Enforcement Agency and working with the task force to get Bulger.

STUTMAN: There was a saying in Boston that Whitey walked down the street, the sidewalk shook. That's how bad he was. That's how tough he was. That's also how mean, crazy and nasty he was.

FEYERICK: Bulger is said to have modeled himself after gangsters immortalized by Hollywood's Jimmy Cagney.

Bulger's brutality was legendary. Like New York mafia don John Gotti, he killed his own crime boss to take over the gang and reportedly once pulled out someone's tongue.

STUTMAN: He could kill you for good reason. He could kill you for a bad reason. He could kill you for no reason. And that was his reputation.

FEYERICK: Bulger's criminal operation included extortion, gun running for the IRA, and drugs, charging traffickers as much as $1 million to bring marijuana and cocaine through Boston Harbor.

UNIDENTIFIED MALE: Who is laughing now, Whitey?

FEYERICK: Radio show host Howie Carr wrote a book about Whitey and his good brother, William, a legendary Boston politician who always denied he knew of his brother's whereabouts. Bulger was ultimately captured in Santa Monica, California, after the FBI ran a television ad seeking Bulger's longtime girlfriend, Catherine Greig.

(CROSSTALK)

(END VIDEOTAPE)

FEYERICK: Now, Bulger is facing 19 counts of murder, Wolf, but Bob Stutman, the former DEA special agent in charge, tells me that, in fact, many agents feel there are many more -- Wolf.

BLITZER: Thanks very much, Deb Feyerick, with that.

Let's get to President Obama's plan now to withdraw some 33,000 U.S. troops from Afghanistan by the end of next summer. Last night, he announced it to the nation and indeed the world.

Today, he took it to the U.S. troops themselves, visiting soldiers at Fort Drum in Upstate New York.

Our White House correspondent Dan Lothian is joining us now with more on the president's trip on this, the day after his big announcement -- Dan.

DAN LOTHIAN, CNN WHITE HOUSE CORRESPONDENT: That's right, Wolf.

And these were soldiers who played an important in executing the U.S. mission in Afghanistan, so, the president saluting them for helping to reverse the momentum of the Taliban, for creating this platform to go after Osama bin Laden and also al Qaeda, and the president saying -- quote -- "We have decimated their ranks."

But even as the drawdown numbers are now more clearly defined, the president pointing out that this mission is not over.

(BEGIN VIDEOTAPE)

LOTHIAN (voice-over): Somewhere between caution and full speed ahead, President Obama drove his troop drawdown timetable right down the middle.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: At ease, everybody.

LOTHIAN: At Fort Drum, home to the 10th Mountain Division, the president explained his math to soldiers, some just back from Afghanistan.

OBAMA: We have turned a corner where we can begin to bring back some of our troops. We're not doing it precipitously. We're going to do it in a steady way to make sure that the gains that all of you helped to bring about are going to be sustained.

LOTHIAN: The president also met privately with Gold Star families, whose loved ones have died in combat or combat-related duty.

While Washington may debate troop numbers, here, they know them by name, like Army Private 1st Class Brian Backus, who was killed in Kandahar Province less than a week ago.

OBAMA: You guys have sacrificed mightily. I know that you got 11 fallen soldiers just out of this group right here, and I think about 270 all told since 9/11. We will never forget their sacrifice.

LOTHIAN: Back in Washington, the president's decision, ordering 33,000 service members home by next summer, drew bipartisan support and bipartisan criticism.

House Minority Leader Nancy Pelosi said, while she respects the president's timetable, ending the war will help reduce the deficit and sharpen the focus on domestic priorities, like jobs and the economy.

REP. NANCY PELOSI (D-CA), HOUSE MINORITY LEADER: The good news on that is the president is bringing the war to -- in Afghanistan an end. Many of us would like to see this go faster than the path that was laid out.

LOTHIAN: House Majority Leader (sic) John Boehner said the troop surge was a big success, but he warned the withdrawal should not be done on a political deadline. REP. JOHN BOEHNER (R-OH), SPEAKER OF THE HOUSE: We have gained a lot of success, but I would describe it as tenuous. And I don't think anyone wants to jeopardize the gains that we have made in Afghanistan.

(END VIDEOTAPE)

LOTHIAN: Now, in addition to Afghanistan, the president also focusing on his 2012 campaign, attending three fund-raisers in New York. Then he comes here to Pittsburgh, Pennsylvania, where tomorrow he will talk jobs and the economy, specifically how new technology can help the manufacturing sector -- Wolf.

While the president is promoting his drawdown plan, his energy secretary is making a controversial decision which could impact gas prices.

Plus, stopping the U.S. from defaulting on its loans and negotiations now on hold, after a big-name Republican walks out of the talks. So, what happens next?

And new fallout from the rather foul-mouthed pilot whose hateful comments were all caught on tape.

(COMMERCIAL BREAK)

BLITZER: Bipartisan negotiations on raising the U.S. debt ceiling have now collapsed, with the House majority leader, Eric Cantor, walking away from the talks from Vice President Joe Biden, saying they had reached an impasse.

Let's bring in our chief political analyst, Gloria Borger.

Gloria, why did Eric Cantor say, at least for now, it's over?

GLORIA BORGER, CNN SENIOR POLITICAL ANALYST: Well, in one sense, Wolf, it kind of surprised everyone because it came so suddenly.

But in talking to people today, it was very clear to me that there was a contentious, some said bitter, tense session yesterday on the budget. And neither side blinked. And it was very clear that Cantor decided he just couldn't continue.

And you know the differences as well as I do. We have all heard this song before. The Democrats don't want to touch Medicare. The Republicans don't want to raise taxes. And when you think about how much money you are talking about, how can you have significant change unless you do one of those two things?

Now, I did talk to some Democrats today who said, look, it's very clear to them that Cantor does want to reach a deal. And they believe he was negotiating in good faith. But they also believe that he couldn't go back to his Republican Caucus with any kind of a deal that had tax increases on the table. So, one thing they said to me is, maybe one thing we ought to think about is a freeze in defense spending. So, we will start hearing I think a little bit more about that.

BLITZER: Because, for days and days and days, they were all these reports that they -- they were making progress.

BORGER: Right. Well, they had made progress.

But you know how these negotiations go. You throw everything out there on the table. They were trying to say -- sort of blue-skying it. And so they got to $2 trillion worth of potential cuts over the next 10 years. But then you have to stop and say, what's politically doable? What is not doable? And that's where you reach this kind of an impasse.

It's happened over and over and over again. Now, as you know, these budget deals tend to fall apart before they come together. So, I wouldn't call it dead for good, because, at some point, they have to get it done.

BLITZER: According to the Treasury Department, they have until August 2.

BORGER: Right. That's right.

BLITZER: So, what happens next?

BORGER: Well, listen to what the House speaker, John Boehner, had to say about that.

(BEGIN VIDEO CLIP)

BOEHNER: If we're going to meet the president's timetable to come to an agreement by the end of this month, then he needs to engage. And if we are going to meet that timeline, the president is going to have to engage.

(END VIDEO CLIP)

BORGER: Now, the president and the speaker did meet yesterday on a variety of issues. But it's very clear that this now has to move up the food chain, as the speaker said, if they're going to get anywhere.

I think the July 1 deadline is about gone. But Cantor's people say, OK, if taxes are off the table, we will go back in that room. Otherwise, you have got to take it to the next level.

BLITZER: Because some Republicans are saying they want a formal commitment from the Democrats for a balanced budget amendment. Short of that, they are not going to support it.

BORGER: Well, yes. It depends, but that could also be a negotiating tool, right, Wolf?

Look, everybody knows that if they don't do something, they will suffer in the eyes of the American public. There is a new poll out by Pew which shows that Republicans would suffer more. But when you look at independent voters -- and you know how important they are in a presidential -- you look at independent voters, they would blame both sides equally.

So they need to get a deal. We just have to figure out how they're going to get there.

BLITZER: Maybe the president and the speaker should go play another round of golf.

BORGER: Maybe.

BLITZER: Maybe that would help. Get Biden out there.

(LAUGHTER)

BORGER: I don't think they can gamble enough to...

BLITZER: Maybe Eric Cantor should join that foursome the next time.

I don't know if Eric Cantor plays golf.

BORGER: We don't know. I know I don't.

(LAUGHTER)

BLITZER: Thanks. Thanks very much.

We will have a quick check of some of the other top stories. That's coming up next in THE SITUATION ROOM.

Also, new information that bin Laden felt al Qaeda was losing the public relations war against the United States.

(COMMERCIAL BREAK)

BLITZER: Just got a statement from the vice president, Joe Biden, on the collapse of the negotiations with the Republicans, Eric Cantor pulling out of those negotiations, saying the Republicans will not accept any increases in taxes in order to raise the debt ceiling.

The vice president saying, among other things: "For now, the talks are in abeyance, as we await that guidance. We stand ready to meet again as necessary."

He then pointedly goes on to say there has to be significant cuts in spending. But he then adds this -- and I will read to our viewers specifically -- "We all need to make sacrifices. And that includes the most fortunate among us."

That means tax -- tax increases for the most fortunate enough among us, meaning rich people, that he is holding firm that there have to be some tax increases into order to get more revenue into the federal budget, in order to deal with this budget deficit.

All right, they're at a standstill right now. We will see what happens next.

And as gas prices start falling, the Obama administration now taking a rather controversial step. We will explain.

And what defines a hostile action in Libya? Wait until you see what one top Obama national adviser has told me.

Stand by. You are in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Secretary of State Hillary Clinton is defending U.S. talks with the Taliban and Afghanistan, giving new details of what the U.S. hopes to accomplish. She faced serious questions today about it on Capitol Hill.

Our foreign affairs correspondent, Jill Dougherty, has more on what is going on.

Jill, a very sensitive subject

JILL DOUGHERTY, CNN FOREIGN AFFAIRS CORRESPONDENT: It is.

And, Wolf, what we heard from the secretary today was a shift in focus to what she is calling the diplomatic surge aimed at winning over the Taliban, telling senators, with Osama bin Laden dead, al Qaeda under extraordinary pressure, the Taliban have to make a choice, be part of Afghanistan's future or face unrelenting pressure.

(BEGIN VIDEOTAPE)

DOUGHERTY (voice-over): The military surge in Afghanistan worked. Now it's time for what the administration is calling the diplomatic surge.

OBAMA: As we strengthen the Afghan government and Security Forces, America will join initiatives that reconcile the Afghan people, including the Taliban.

DOUGHERTY: Testifying before the Senate Foreign Relations Committee, Secretary of State Hillary Clinton highlighted that diplomatic surge, claiming that stopping the Taliban's momentum is paying off.

HILLARY RODHAM CLINTON, U.S. SECRETARY OF STATE: We were not in a position, frankly, to pursue that until recently. Why? Because the Taliban were not interested in talking to us, because they thought they were going to make a big comeback.

DOUGHERTY: It's not a pleasant business, Clinton said, but it's a necessary one. CLINTON: I do hope that everybody in the Congress and the press and the public understands that you don't end wars by talking only to people with whom you agree or who are good actors. You end wars by, unfortunately, but the fact is, talking with people whose interests and values are often very much opposite of yours.

DOUGHERTY: But there are red lines, Clinton insists, at least at the end of negotiations.

CLINTON: Any potential for peace will be subverted if women or ethnic minorities are marginalized or silenced.

DOUGHERTY: The Taliban, she says, must renounce violence, abandon al Qaeda and abide by the Afghan constitution, including its protections for women.

SEN. JEANNE SHAHEEN (D), NEW HAMPSHIRE: Do you think that there really is the possibility for any kind of an agreement with the Taliban?

DOUGHERTY: I think there is. But I think that we're a long way from knowing what the realistic elements of such an agreement would be.

(END VIDEOTAPE)

DOUGHERTY: And Secretary Clinton herself sounded somewhat skeptical and she said that those power sharing agreements can sometimes just be a way the warring parties maneuver before they go back to fighting. But Wolf, it's very clear that this administration feels that is the only way his conflict is going to end.

BLITZER: All right, Jill. Thanks very much. Jill Dougherty reporting.

Even after the U.S. drawdown is complete by the end of 2014, a massive international force will remain in Afghanistan, possibly for years to come. I talked about that, much more with the White House deputy national security adviser Dennis McDonough.

(BEGIN VIDEOTAPE)

BLITZER: Yesterday an administration official told reporters there were only between 50 and 75 al Qaeda terrorists left in all of Afghanistan right now. So the question is: why does the United States need hundreds of thousands, potentially, of troops, NATO allies, 300,000 Afghan troops? Why does the U.S. and NATO and Afghan allies need a half a million troops to deal with maybe a hundred al Qaeda fighters and maybe 25,000 Taliban fighters?

DENNIS MCDONOUGH, WHITE HOUSE DEPUTY NATIONAL SECURITY ADVISOR: Yes, I mean, a half million troops, that's an overstatement. I think right now we have...

BLITZER: There are 300 -- 300,000 Afghan troops who have been trained by the United States and NATO, 100,000 U.S. troops, 40,000 NATO. That's 440. MCDONOUGH: Of course -- of course, the Afghan troops are going to carry out a whole range of security requirements for their country so that we and others don't have to.

Here's what we are doing again, Wolf. We're going to take the fight to al Qaeda wherever they are. Yemen, Somalia, Southeast Asia, and in Afghanistan and Pakistan. What we have done is -- part of the reason that you have such smaller numbers of al Qaeda there is because of the success of our troops. That's why the president thanked them and their families last night. So we're going to stay on the offense there.

But what we're also going to do is we're going to train the Afghans, and we're doing that...

BLITZER: For 10 years they've been training the Afghans. And they have 300,000 soldiers, police force that have already been trained. General Caldwell is doing an excellent job. Why can't they take over now?

MCDONOUGH: Well, increasingly, they are, Wolf. In fact, you heard General Petraeus say over the course of the last several days more and more specially trained Afghans, special operators, are working with our special operators to carry out these targeted raids against Taliban and senior level operators. That's why we have over the last 18 months ensured that 20 of the top 30 Taliban and al Qaeda leaders have met justice.

That's the kind of thing that the Afghans are doing, and that's exactly why we -- the president got us on this path to reduce our presence, to allow them to take on more of their share of the burden.

BLITZER: Is it realistic, as the president suggested last night, to start negotiations, peace negotiations with the Taliban, based on the conditions, the outline because, you know, the one condition that I saw that jumped out at me was the Taliban would have to accept the Afghan constitution. Is that realistic?

MCDONOUGH: Well, these aren't preconditions for the start talks. This is what we think has to happen for there to be a durable solution, a bearable peace agreement. And I think those are basically the base line requirements.

(CROSSTALK)

BLITZER: Will the Taliban -- will the Taliban -- excuse for interrupting -- accept Article 22 of the Afghan constitution that calls for equal rights for girls and women?

MCDONOUGH: Well, it's one of the reasons that we point out the importance of the constitution. Obviously, you heard the president talk last night about the gains that our troops and that Afghans have ensured for Afghan women and girls. I think that's an important innovation and an advancement in Afghanistan.

BLITZER: So you think the Taliban will ever accept that? MCDONOUGH: Well, you can ask the Taliban that, Wolf, but we're going to find out. And if they do, that's great. If they don't, then what they'll see is continued pressure from our targeted operations, continued pressure from more and more capable Afghans, security forces. We'll keep the heat on them.

I don't know what will happen at the end of this process, but I do know that each additional day that we buy increases the Afghans' capacity to keep the heat on the Taliban. That's in our interest. That in Afghan's interest, and that's why we're doing it.

BLITZER: One final question on a related subject, Syria right now. The president was quick to call for Hosni Mubarak to step down, quick to call for Muammar Gadhafi to step down. He's not so quick to call on Bashar al-Assad in Syria to step down. Why?

MCDONOUGH: Well, I think what we've seen is you've seen any indication, and Secretary Clinton said in her op ed over the weekend, Wolf, that we're not seeing any indication that President Assad is in a position to reform or to leave.

What the president said if he's not in that position to do that, then he should leave. We'll leave that up to the Syrian opposition and the Syrian people to make that determination. When you sit here. When you sit where you are, we're not seeing any kind of indications that he's making that kind of progress.

I will just say one other thing related, Wolf, on this issue, also related but not specifically to this matter. We're seeing some rumblings up on the Hill for this debate as it relates to Libya. Secretary Clinton just had a very good meeting with the Democratic Caucus on this.

We think that at a time when Libyan opposition. In fact, I saw an intelligence piece today whose title was "Libyan opposition bearing down on regime-controlled towns." When we're having indications like that, we find it very confusing as to why certain members on the Hill want to let the heat off of the Libyan leadership, the Gadhafi regime.

We're seeing our allies, the Libyan opposition, with our support -- not us in the lead but with our support -- making good progress against the Libyan regime. We don't think this is the right time for us to be letting -- letting our foot off the gas.

BLITZER: Because what they want, and a lot of members of Congress, Democrats and Republicans, is a resolution authorizing military action in Libya. They say these are hostilities, that this is hostile action that the United States is engaged in and that the War Powers Resolution applies. You disagree.

But let me throw you the opposite. What if the Libyans launch bombs or missiles against U.S. targets? Would that be considered hostile action?

MCDONOUGH: Well, what we're going to do against anyone who attacks us, Wolf, is exactly what we've done for the last two and a half years, which is to go -- to go on offensive and thin these guys down as we've done in al Qaeda in Afghanistan, Pakistan, Somalia, Yemen, and elsewhere.

Now, as it relates to what's happening in Libya, I'm not engaging in a debate. I'm not a lawyer. I'm not engaged in a debate on the War Powers Act. I am engaged in an effort with our allies with Arab nations, with the Libyan opposition, to keep the pressure on Gadhafi. Somebody who has blood -- American blood on his hands. And we're going to keep that bit of offense and keep ourselves on the offense.

As this question -- as to this question of hostilities, this isn't a game of Pictionary. This is a game where our lawyers have looked at it and many lawyers have looked at it. And the actions that we're taking are well within the precedent that has been set by other administrations. The Reagan administration, the Clinton administration. Regan administration in Lebanon. Clinton administration in Kosovo.

We're operating well within the president's authority, doing so consistent with our efforts to keep Congress well informed, consulting closely with them. What we're not going to do is let our -- is somehow indicate to our NATO partners, our NATO allies who are in the lead on this. They're undertaking the lead efforts that we can't support them. We think now would be the wrong time to do that.

BLITZER: Dennis McDonough, good luck.

MCDONOUGH: Thanks a lot, Wolf. Always good to be with you.

(END VIDEOTAPE)

BLITZER: Letters found in Osama bin Laden's compound in Pakistan indicate the terrorist leader thought the U.S. might be winning the battle for hearts and minds in the Muslim world.

And with the Fourth of July holiday on the horizon here in the United States, should drivers be concerned that gas prices are going to surge again? What the Obama administration is doing to try to keep prices trending downwards. Stick around. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: The information that we recovered from bin Laden's compound shows al Qaeda under enormous strength. Bin Laden expressed concern that Al Qaeda had been unable to effectively replace senior terrorists that had been killed and that al Qaeda has failed in its effort to portray America as a nation at war with Islam, thereby draining more widespread support.

(END VIDEO CLIP)

BLITZER: President Obama touched on it last night in the speech announcing the U.S. drawdown in Afghanistan. Now source are telling CNN documents found in bin Laden's house show the terror leader was increasingly afraid al Qaeda was losing the public relations war. Our homeland security correspondent, Jeanne Meserve, she's got more information for us.

So what do you think you're up to?

JEANNE MESERVE, CNN CORRESPONDENT: Well, it's a little odd to think of al Qaeda concerned about P.R., but that's what these materials suggest.

A U.S. official says letters found at the compound in Abbottabad suggest that bin Laden was very concerned the west had been able to reframe the image. One example: he learned that the west had shortened the name of the group from al Qaeda al Jihad, and he thought that might prevent Muslims from identifying with the group.

A U.S. official says letters between bin Laden and the man who now leads al Qaeda, Ayman al-Zawahiri, show that bin Laden was also concerned that attacks by al Qaeda in Iraq, which killed civilians, were damaging al Qaeda's image in the Muslim world.

In addition, says the official, senior officials were concerned that so many top figures in the organization had been killed and that there bench of seasoned, skilled leaders was not deep enough. The official says the letters were relatively recent, some of them written just earlier this year.

Wolf, back to you.

BLITZER: All right, Jeanne. Thank you.

Meanwhile, here in the United States, Americans have gotten a little bit of relief at the gas pump in recent weeks. The national average for a gallon of gas has dropped around 35 cents since hitting a high of nearly $4 in mid-May.

Now the Obama administration is moving to try to keep prices from jumping back up. Lisa Sylvester is following this story for us. The world oil market is enormous out there. So tell us what's going on.

LISA SYLVESTER, CNN CORRESPONDENT: Wolf, you know the short answer is the focus is not just on where the prices are at the moment, but where prices are headed.

Predictions were that gas and oil prices were going to climb during the summer months. And the administration, to try to spare some of the pain at the pump, has decided to tap into the country's oil reserves.

(BEGIN VIDEOTAPE)

SYLVESTER (voice-over): To offset the loss of Libyan oil, the Energy Department will release 30 million barrels of oil from what's known as the Strategic Petroleum Reserve, a U.S. emergency oil stockpile.

DANIEL PONEMAN, DEPUTY ENERGY SECRETARY: This is not a U.S.-only decision. This is something in which both the consumer side, the producers' side, everyone seems to be in agreement that this is a time where we need to make sure that the market is adequately supplied so that the demand can be met.

SYLVESTER: The U.S. has 727 million barrels in the strategic reserve. Thirty million barrels is really only a drop in the bucket. That's about the amount of oil the United States consumes in a couple of days.

Other member countries of the International Energy Agency will add an initial 30 million barrels to help ease prices.

(on camera) But take a look at the trend of the price of oil and gasoline. We have a graphic that we can show you: $3.60 a gallon, that's the price of gas right now. Started to go up in December. It peaked in May, and then it started to go back down.

So why now? Why now is the Energy Department suddenly tapping into the Strategic Petroleum Reserve?

(voice-over) The Obama administration says about 130 million barrels have been taken off line at the same time demand is increasing. The administration had hoped that OPEC countries would boost supply, but that hasn't happened yet.

Analysts say another driver is politics. Federal chairman Ben Bernanke this week offered a gloomy economic forecast. High gas prices could keep a damper on the economy.

(on camera) How much does politics have to do with this? We're going into an election year.

BOB MCNALLY, ENERGY CONSULTANT: I think it's fair to say that politics enters into any kind of decision like this. Clearly, the president sees the potential for high oil prices as a threat not only to economic growth but to his reelection next year.

However, any president would view oil prices that way.

SYLVESTER: Republican Congressman Jason Chaffetz calls it a Band-Aid.

REP. JASON CHAFFETZ (R), UTAH: While releasing 30 million barrels may make the price of gas go down for a few days or maybe a few weeks, it's not going to solve the problem. And the House Republicans have been out of it and saying, "We've got to solve the problem so we don't run into this."

SYLVESTER: Chaffetz says the answer is more drilling and pursuing alternative energy sources.

(END VIDEOTAPE)

SYLVESTER: Another energy analyst says tapping into the reserve also sends a message to speculators who have been driving up oil prices. That message from the U.S. government: we're the ones driving here, that the administration can and will take action if it appears prices are going to shoot through the roof, Wolf. BLITZER: Interesting. After several weeks of saying they weren't going to do it, they did it. And just as prices were going down.

SYLVESTER: We reported on it here...

BLITZER: Yes.

SYLVESTER: ... how they were out of it, saying it has to be an emergency; it has to be an emergency. Now they are saying it's an emergency, Wolf.

BLITZER: Lisa, thanks very much.

A push to end the federal prohibition of marijuana here in the United States. Is it a step towards legalization? We have details of a controversial bill and the unlikely political pair behind it. Our own Brian Todd standing by live with details.

(COMMERCIAL BREAK)

BLITZER: The controversy over legalizing marijuana in the United States is heating up with a bill that would end the federal prohibition on pot and let states decide how or if they want to continue enforcing marijuana laws. It's an unusual effort by a political odd couple: Democrat Barney Frank and Republican Ron Paul. CNN's Brian Todd is working the story for us.

Brian, what do we know about all of this?

BRIAN TODD, CNN CORRESPONDENT: Wolf, we know it's going to be tough for Barney Frank and Ron Paul to push this bill all the way through. But Barney Frank told me it's worth it to at least begin this process and to attack a prohibition on marijuana that he says has done more harm than good.

(BEGIN VIDEOTAPE)

TODD (voice-over): A bold new plan to end a major battle in the war on drugs. Two prominent congressmen say it's time for the feds to stop regulating marijuana. Democrat Barney Frank and Republican presidential hopeful Ron Paul are pushing a bill that would let the states make their own laws on marijuana. The states could legalize, tax and regulate the use of pot, and the federal government would only crack down on smuggling across the national border or into states that don't legalize marijuana.

(on camera) Is this a legalization bill?

REP. BARNEY FRANK (D), MASSACHUSETTS: We should not have federal laws that make the use -- personal use of marijuana criminal or the growing of it. It should be criminal if a state wants to maintain its restrictions, and the federal government should honor that state's laws.

TODD (voice-over): Frank says there are two principle reasons he's behind this: to make sure the government doesn't intrude on freedom of choice, and to stop wasting federal resources on enforcement of anti- marijuana law that he says hasn't been effective.

(on camera) During this slow recovery, the economics of legalization also come into the debate. According to a study published six years ago by a pro-legalization professor at Harvard, cash-strapped California could bring in more than $105 million a year in revenue if marijuana sales were taxed there.

Look at what New York, Florida, Texas and Ohio could make. That same study found that, if marijuana was legalized, states would also save more than $5 billion a year in law enforcement costs, and the federal government could save more than $2 billion a year on police, courts and prisons.

(on camera) But Sue Thau, an opponent of legalization, shoots right through those numbers. She cites a federal study which shows illegal drug use, all drugs, costs society nearly $200 billion a year in lost productivity, health care, criminal justice and child welfare.

SUE THAU, COMMUNITY ANTI-DRUG COALITIONS OF AMERICA: The issue is do we want more harmful substances more available to our youth? And I think the answer is no. I think we have enough societal problems dealing with alcohol, and we're doing a pretty poor job of dealing with that as it is.

(END VIDEOTAPE)

TODD: Even if the marijuana bill makes it through Congress, which is a long shot, it would still have to get past President Obama. The White House tells CNN it will not comment specifically on this new bill, but it says legalization is a nonstarter at the White House, because research shows it's too commonly associated with treatment admissions, fatal accidents and emergency room admissions. Wolf, the White House doesn't want any part of this -- Wolf.

BLITZER: And a recent public opinion poll shows the American public still largely opposed to legalizing marijuana.

TODD: It does. And a CNN/Opinion Research Corporation poll in April shows that 56 percent of respondents were opposed to legalization; 41 percent were in favor of it. But that gap is really a lot narrower than it was a decade ago and much, much narrower than it was 25 years ago. So the trend is toward more people favoring legalization, but still enough oppose it to make it politically maybe not too feasible, Wolf.

BLITZER: Barney Frank and Ron Paul teaming up on this.

TODD: Leading the charge.

BLITZER: Thanks very much.

A commercial airline pilot goes on an obscene radio rant about his crew of flight attendants. Part two of this story. Jeanne Moos coming up next.

UNIDENTIFIED MALE: With two girls, one of them that was probably doable.

MOOS: ... others pilots couldn't wait to disown the transmission.

UNIDENTIFIED MALE: We're 195230 and that was not us.

UNIDENTIFIED MALE: And it wasn't us either.

MOOS: That pilot's a big man all right, a grande of the skies.

UNIDENTIFIED MALE: Now I'm back in Houston, which is easily one of the ugliest bases.

MOOS: Jeanne Moos, CNN...

SLATER: I'm glad I'm not a Houston-based flight attendant. I think my self esteem would be down the Rio Grande.

MOOS: ... New York.

(END VIDEOTAPE)

BLITZER: That's it for me. Thanks very much for watching. I'm Wolf Blitzer in THE SITUATION ROOM. For our international viewers, "WORLD REPORT" is next. In North America "JOHN KING USA" starts right now.